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Blockbuster undercuts rival Netflix

Firm trims its prices on online-only plans

DALLAS -- Blockbuster Inc. is offering lower-priced plans for online movie rentals as it competes with Netflix Inc. in a market that some analysts say could grow more than 40 percent this year.

Yesterday, Blockbuster said it would cut prices $1 a month for customers who order movies only online. Just a month ago, Blockbuster's chief talked about raising prices.

Analysts said Netflix could be forced to drop its prices, which would reduce its profits.

Blockbuster said it would offer a plan letting customers place online orders to rent three movies at a time for $16.99, a dollar cheaper than its most popular offering, called Total Access. The movies are mailed to the customer.

The difference is that a customer on the cheaper plan, called Blockbuster by Mail, won't get a free rental by returning DVDs to a store instead of mailing them back. The customer will, however, get a coupon for one free in-store rental per month.

Blockbuster said it would offer more limited plans, such as two movies a month for $4.99 per month.

Netflix charges $17.99 for a three-out-at-a-time plan, and it has begun throwing in movies streamed over the Internet for customers with high-speed access and a Windows-based computer.

It also has a $4.99 plan for up to two rentals per month.

Michael Pachter, an analyst with Wedbush Morgan Securities, said Blockbuster's cheaper offer puts Netflix on the spot.

"They can cut prices, which will kill their profitability, or they can do nothing and watch their subscriber growth wane," Pachter said.

Stacey Widlitz, an analyst with Pali Research, said $1 a month might not persuade current Netflix customers to switch, "but it will affect the new customers."

Blockbuster is losing money on the online business, but says it will be profitable next year as orders rises.